Principal Issues: What is the effect of a paragraph 80(15)(a) deduction on the acb of the partnership interest?
Position: No effect on the acb of the partnership interest.
Reasons: Wording of the Act and the explanatory notes.
2010-035809 XXXXXXXXXX Chrys Tzortzis, CA (613) 957-2082 April 26, 2010
Dear XXXXXXXXXX :
Re: ACB of Partnership Interest and Subsection 80(15)
This is in response to your email of February 19, 2010, inquiring about the effect of the deduction available in paragraph 80(15)(a) on the adjusted cost base of the partnership interest.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the internet at http://www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.
The debt forgiveness rules in section 80 of the Income Tax Act may apply to a partnership where a forgiven amount results from a settlement of a commercial debt obligation issued by a partnership. Where subsection 80(13) requires an income inclusion at the partnership level (which is then included in the income of the partner as a consequence of section 96), paragraph 80(15)(a) allows a partner to deduct an amount in the calculation of the partner's income. Paragraph 20(1)(uu) allows the deduction in computing income from business or property. Subparagraph 80(15)(c)(i) deems the partner to have issued a commercial debt obligation that was settled and the amount so deducted pursuant to paragraph 80(15)(a) is treated as if it were a forgiven amount. The rules in section 80 will then apply to the partner in respect of that forgiven amount to reduce certain tax attributes of the partner. Any unapplied balance will result in income to the partner pursuant to subsection 80(13).
The explanatory notes for subsection 80(15) state that the purpose of that subsection is to provide relief for members of a partnership, in recognition of the fact that a partner may have undeducted loss carryforwards and resource expenditure pools that are attributable to activities of the partnership. The forgiveness of an obligation that is deemed to arise for a partner is treated in the same manner as a forgiven amount in respect of an obligation issued by the debtor would be treated. The explanatory notes include an example which illustrates that the deduction under paragraph 80(15)(a) does not have any effect on the adjusted cost base of the partnership interest. However, as the rules in section 80 will then apply to the partner in respect of the forgiven amount, the partner may apply the forgiven amount to reduce the adjusted cost base of the partnership interest to the extent permitted by the debt forgiveness rules.
We trust that these comments will be of assistance.
Yours truly,
G. Moore
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch